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Opposition leader Bill Shorten has announced plans to tax
distributions from family trusts at 30% as Labor targets wealthy
people using trusts to cut their tax bill.

The ALP believes the change, which would target the country's top
2%, could raise $4.1 billion to FY21-22 $17.2 billion over 10
years.

Shorten argues Australia has "a two-class tax system" and Labor's
targetting of discretionary trust distributions to people over 18
follows on from reforms by former treasurer (and later PM) John
Howard in the early 1980s.

Discretionary trusts are used to redistribute income from sources
other than PAYG work, with the ability to split the money among
people in lower tax brackets to reduce tax liabilities. While
they are common amongst wealthy families they are also used by
small family businesses to house assets and reduce tax exposure.

"When some Australians don't have the option to opt out of the
tax system and choose their tax rate, but the fortunate few do,
we think that this needs to be tackled," Shorten said

"While artificial income splitting is completely legal, that
doesn’t mean it is fair.

"Ordinary PAYG workers do not have the option of artificially
splitting their income among different family members to lower
their tax bill."

Shorten said the average amount held in private trusts by the
wealthiest 20% of households is $123,000, while for the next
wealthiest quintile it's $4,000.

"We're not abolishing trusts. This is about trusts serving their
true purpose, so that distributions are taxed fairly," Shorten
said.

"Individuals and businesses will still be able to use
discretionary trusts. However, the new minimum 30% tax rate on
distributions will make sure discretionary trusts cannot be used
as a vehicle for aggressive tax minimisation."

Labor says there are 642,000 discretionary trusts in Australia
and its changes will target around half of those, 315,000.

The government portrayed the move as a tax on small business,
with finance minister Mathias Cormann saying small business
owners use trusts and the move will damage the economy.

"Bill Shorten is going to try and create this impression that he
can take $17 billion out of the economy but no-one's going to
have to pay," he said.

Shadow treasurer Chris Bowen rejected the suggestion, saying very
few small businesses use discretionary trusts.

"I mean there are many, many hundreds of thousands who are small
businesses in Australia and most don't use discretionary trusts,"
he said.

While Labor's proposed tax rate is the same as the current
company tax rate, Bowen said it was different to an earlier
Greens policy to tax trusts as companies, saying the ALP rejected
the idea.

"It doesn't work primarily because if you tax trusts as companies
then you provide dividend imputation and there's obviously, you
don't really get the improvement in the Budget bottom line. The
improvement in the Budget bottom line comes only then from
foreigners who have trusts in Australia," he said.

Chartered Accountants Australia and New Zealand head of tax
Michael Croker, said his organisation was prepared to work with
Labor, saying Sunday's announcement was light on details.

“There are already a number of emerging questions about Labor’s
model”, he said, including the equity of treating active small
businesses differently from farmers and the potential for
over-taxation, particularly for business trusts.